What Is an LLC? And How Is It Different Than a Corporation?

I know a thing or two about the complexities of launching a new business. As the owner of several businesses in the Los Angeles entertainment industry, I know from experience that you'll have a quadrillion questions.

Most “movers and shakers” need to pick between establishing a corporation (aka Inc.) or a limited liability company (aka LLC). This can be a tough decision, largely because it's difficult to understand the difference.

What is an LLC?

An LLC, or limited liability company, is a legal business entity you form to protect your personal assets from liability. It will also establish how your business income is treated come tax time. It's not the only business entity that does this, though. It's one of a handful.

These two business entity options have some similarities and, of course, differences. Choosing between the two will depend on your business type and its needs, as well as your own liability and tax planning goals.

What are the differences between an LLC and a Corp?

Liability Protection

One reason why making your business an LLC is worthwhile is because, as the name “limited liability company” suggests, it creates a barrier between the business activity and the member's personal assets from a legal standpoint. That said, an Inc. pretty much offers the same liability protection that an LLC does.

Generally speaking, LLCs indeed have less paperwork, particularly because it doesn't have to hold “annual meetings” of the directors and take meeting minutes. It also does not have to issue “stock certificates” to its members.

Paperwork

Tax Treatment

Tax savings used to be the most important deciding factor between an Inc. and an LLC. Oddly, since both can be classified as C corps and S corps for tax purposes, they can be pretty much the same.

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